Posted: January 24th, 2022

Finance essay

Practice Problem: Recording Company Transactions, Journal Entries, Debits and Credits

John Shields developed a protective spray which allows users of electronic equipment to protect themselves from the radiation emitted from virtually all wired and wireless products found in the home and office. John Shields, together with a group of investors, established Radiation Shields (RS), Inc which will exploit Shields’s patented technology.

Analyze and record journal entries for the following company events (all numbers in thousands, except per share data).

1. Radiation Shields incorporates in January 2020. 13,000 shares are issued to investors for $2 per share.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

2. On February 1, RS Inc. signed a one year lease agreement for a commercial property. The lease term begins February 1, and the annual lease payment of $240 was paid in full.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

3. On June 23, RS Inc. paid $6,000 upon receiving a delivery of materials for use in the production of commercial RadioShields.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

4. RS Inc. paid $1,200 for salaries to corporate officers and employees.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

5. On July 1, borrowed $6,000 from a bank.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

6. On July 2, RS Inc. purchased new machinery that will be used to produce the RadioShields for $13,500 in cash. An additional $1,500 was paid for installation.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

7. RS Inc. has outsourced the development of the prototypes for its products. At the beginning of August 2020, the engineering company delivered the prototypes and was paid a total of $2,000 in cash.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

8. Additional materials (chemical components, cans, etc.) to be used in RadioShield production were purchased for a total of $3,000. Under the favorable terms obtained from its suppliers, RS Inc. will make no payments until February 2021.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

9. During the six months ended December 31, 2020, the company paid $2,000 on manufacturing-related overhead (e.g., utilities).

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

10. An additional $3,300 in cash was paid for corporate salaries and other corporate expenses (for the July-December period).

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

11. RS Inc. spent $2,000 in cash on advertising to help introduce the product.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

12. RS Inc. sold a total of $23,000 of its products. As of the end of the year, a total of $9,600 of these sales had still not yet been collected. The original cost of products sold was $8,100.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

+ = + + – =

13. On December 13, 2020, RS Inc. signed a contract with the organizer of the International Fair for Electronic Consumer Products for 100 units of RS’s smaller spray cans, which are intended to be given away to visitors of the trade show. The selling price specified in the contract is $5 per unit. RS Inc. promised to deliver the units on March 10, 2021. IFECP has up to 30 days after delivery to pay for the spray cans.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

14. At the end of the year RS Inc. paid $300 in interest on their bank loan.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

15. RS Inc. earned but did not receive $200 in interest on its cash account.

Balance Sheet
Income Statement

Transaction Cash Asset + Noncash Assets = Liabil-
ities + Contrib. Capital + Earned
Capital Rev-enues – Expen-
ses = Net
Income

+ = + + – =

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